Category Archives: Business

As such, I realize the industry is not suffering from a lack of law professors — it is suffering from a lack of imagination. They gave us cup holders and electric seat warmers when we wanted angel fur and bubble tops. They pushed micro-clown cars and hybrids when the market was rife for chromed 8-deuce Chrysler Hemis. Well, Bucko, all that outmoded thinking is going to end during the reign of Czar Dave. Saving the American auto industry is going to be a big job, but I won’t be doing it alone. I have already appointed my own shadow Council of Automotive Advisors, a select group of successful auto manufacturers whose qualifications appear after the jump. Many are close personal friends of mine, and I can attest to their patriotism, integrity, ingenuity, and wonderful lack of law degrees.

Why not? We could do worse. And almost certainly will.

And as you can see, his advisory council is without peer. I particularly like the discreet tasteful town car to get him to important meetings in our nation’s capital.

Just a few days ago in a meeting with American CEOs of American banks, President Obama’s tone and attitude were rife with the arrogance, dismissiveness, and derision he had just criticized in Europe. A participant in the meeting told Politico that when the CEOs tried to explain that the nature, complexities, and competition of the finance and banking industries required that they continue retention bonuses for their employees, the president became impatient. He interrupted them and said, “Be careful how you make those statements, gentlemen. The public isn’t buying that. My administration is the only thing between you and the pitchforks.”

The imagery behind Obama’s threat couldn’t be more obvious: comply with my demands or I will make sure you are harassed, intimidated, and run out of town on a rail. He made them an offer they couldn’t refuse. Don Corleone couldn’t have said it better.

We can not forget, however, that it was Barack Obama himself along with his fellow Democrats who agitated this mob-like frenzy about the banks, the CEOs, and the bonuses. It was Obama who said the bonuses were an “outrage” and a “violation of our fundamental values.” Democrat Barney Frank hauled AIG’s CEO in front of the House Financial Services Committee and interrogated him, demanding to know why he approved the hundreds of millions of dollars of bonuses. Conveniently, Congressman Frank failed to mention that the approval was inside the very stimulus bill Obama championed and the Democrats overwhelmingly voted for.

Henry Spencer is describing the technical issues of the realm between low suborbit and orbit. His bottom line (which which I agree): there’s not a lot of market to justify investment for mid-range performance, including ballistic trajectories, because they need almost as much performance as orbit.

Thinks that there may be a role for suborbitals as a first stage for nanosats, and it may be possible to make some money on it, but they’re not going to be willing to pay a lot for a launch, particularly considering that piggybacking on orbital launches isn’t that expensive. Not a lot of utility to cubesats to date, most of them “solar arrays with radios.”

[Update a while later]

Sorry, there was a whole lot of other discussion, but it wasn’t completely jointed, and I was distracted. I saw Clark Lindsey taking notes, though, so I’ll bet he’ll have something posted later this evening.

Before talking about how we did get here, let me say a quick word about what didn’t cause this mess. Those who wish to blame greed for the crisis need to explain how and why it is that greed seems to causes crises only at specific times, despite the fact that it is omnipresent as a feature of human nature and market economies. As the economist Larry White has noted, if we saw a bunch of planes crash all on the same day, we wouldn’t blame gravity. It’s always there. Something else must be at work. I would argue that the key is the set of institutions through which greed or self-interest is channeled. That is, good institutions can cause self-interest to generate desirable unintended consequences, and bad ones can cause undesirable ones. So perhaps we should be looking at institutions and policy.

Those who wish to blame deregulation or the supposed “laissez-faire” philosophy of the Bush Administration are going to have to identify the deregulation in question, which will be a challenge given that the last deregulatory legislation in the financial industry was in 1999 under Clinton. These folks will also have to explain how the enormous growth in the Federal Register and domestic spending over Bush’s two terms reconciles with his supposed belief in laissez-faire. Answer: it doesn’t.

The two key causes of this crisis are expansionary monetary policy on the part of the Fed and a series of regulatory and institutional interventions that channeled that excess credit into the housing market, creating a bubble that eventually had to burst. In other words, the boom (and the inevitable bust) are the product of misguided government policy, not unbridled capitalism.

The Fed drove up the money supply and drove down interest rates very consistently since 9/11. When central banks do so, they make long-term investments relatively cheaper than short-term ones, thus the excess funds flow toward such goods. Historically, these were producer goods in capital industries, but in this particular case, a set of other government interventions and policies pushed those funds toward housing.

A state-sponsored push for more affordable housing has been a staple of several prior administrations. Fannie Mae and Freddie Mac are key players here. Although they did not orginate the questionable mortgages, they did develop a number of the low down-payment instruments that came into vogue during the boom. More important, they were primarily responsible for the secondary mortgage market as they promoted the mortgage-backed securities that became the investment vehicle du jour during the boom. Both Fannie and Freddie are, we must remember, not “free-market” firms. They are “government-sponsored entities,” at one time nominally privately owned, but granted a number of government privileges, in addition to carrying an implicit promise of government support should they ever get into trouble. With such a promise in place, the market for mortgage-backed securities was able to tolerate a level of risk that truly free markets would not. As we now know, that turned out to be a big problem.

Read all. It also points out the ways that this mess is the debris of the New Deal and the depression.

And yet the lies that got Obama elected — that this was caused by “greed,” “deregulation,” and “tax cuts” continue, and continue to be used to justify running up the national debt to insane levels and nationalizing vast swathes of the economy.

…we take [failing enterprises] away from bankruptcy judges, who are experts, and give them to a collection of congressional individuals who are charitably called clowns. When you bring commercial decisions to Congress they become politicized, and politicized decisions become destructive decisions.

I think anyone who owns auto-sector debt (whether directly or through a pension or life insurance policy) should be very concerned — they can only find their interests made subject to the political interests of organized labor. Further the American people should probably also be concerned, as we will continue to support with tax dollars a company that has simply proven itself incapable of competing in a free market for the last several decades.

Secondly, we should all be very, very concerned that the White House had decided that it is within its writ to decide who the captains of industry are. The CEO of any company should be chosen by its Board, as elected by its shareholders. The shareholders of GM have just been disenfranchised by a Presidential phone call.

Chief Executives being chosen by politicos is probably common in China or Russia, but those are not countries we want to be emulating. I do not like this at all.

GM is now Obama’s company. If it closes, it will be on his say-so. But Obama is a politician, not a CEO. So his first concern is to avoid bad political fallout, which means he will prop up the company for as long as it takes, regardless of what makes economic sense. This, in turn, will likely make the company either less economically sound or, it will rebound — but only by getting special breaks other companies won’t get. Either way, bad practices will be rewarded and/or good practices will be punished. More firms will see that gaming Washington pays off and the cycle will continue.

Of course, the good news is that being a law professor and community organizer totally prepares you to run huge white elephant multinational corporations.

The first quid pro quo for the government giving you money (or “investing”, as President Obama and David Brooks say) is that it gets to regulate your behavior. Not just who sits on your board or (see Sarkozy last week) where your factory has to be. When the government “pays” for your health care, it reserves the right to deny (as in parts of Britain) heart disease treatment for smokers or hip replacement for the obese. Why be surprised? When the state’s “paying” for your health, your lifestyle directly impacts its “investment.”

The next stage is that, having gotten you used to having your behavior regulated, the state advances to approving not just what you do but what you’re allowed to read, see, hear, think: See the “Canadian Content” regulations up north, and the enforcers of the “human rights” commissions. Or Britain’s recent criminalization of “homophobic jokes.”

You’d be surprised how painlessly and smoothly once-free peoples slip from government “investing” to government control.

There is such a thing as American exceptionalism, but the current regime is doing everything possible to obliterate it as quickly as possible. Don’t think it can’t happen here. It can, if we let it.

The fascist bargain goes something like this. The state says to the industrialist, “You may stay in business and own your factories. In the spirit of cooperation and unity, we will even guarantee you profits and a lack of serious competition. In exchange, we expect you to agree with—and help implement—our political agenda.” The moral and economic content of the agenda depends on the nature of the regime. The left looked at German business’s support for the Nazi war machine and leaped to the conclusion that business always supports war. They did the same with American business after World War I, arguing that because arms manufacturers benefited from the war, the armaments industry was therefore responsible for it.

It’s fine to say that incestuous relationships between corporations and governments are fascistic. The problem comes when you claim that such arrangements are inherently right-wing. If the collusion of big business and government is right-wing, then FDR was a rightwinger. If corporatism and propagandistic militarism are fascist, then Woodrow Wilson was a fascist and so were the New Dealers. If you understand the right-wing or conservative position to be that of those who argue for free markets, competition, property rights, and the other political values inscribed in the original intent of the American founding fathers, then big business in Fascist Italy, Nazi Germany, and New Deal America was not right-wing; it was left-wing, and it was fascistic. What’s more, it still is.

… the case for broadening regulators’ oversight to include investment banks and other financial institutions is based on three flawed assumptions.

The first is that the same factors that justify expansive powers to close banks and take control of their assets are equally applicable to investment banks and other financial institutions. But the FDIC’s interest in commercial banks is unique — because it guarantees deposits up to $250,000, the FDIC is a bank’s most important creditor and has a stake in its health as the representative of American taxpayers. The government’s stake and the need to assure that depositors do not lose access to their deposits, even temporarily, arguably justify the FDIC’s extraordinary powers. Those factors are not present with investment banks or other financial institutions.

The second flawed assumption is that our bankruptcy laws are not adequate for handling defaults by investment banks or other financial institutions. …

Contrary to the widespread myth that bankruptcy is time-consuming and ineffectual, Lehman sold its major brokerage assets to Barclays less than a week after filing for bankruptcy. It is now in the process of selling its tens of billions of dollars of less time-sensitive assets at a more deliberate pace. …

The third flawed assumption is that financial firms flirting with distress are somehow worse decision makers than federal regulators. But the opposite is likely true. If the Treasury, FDIC and Fed had authority over investment bank failures, troubled banks would have a strong incentive to negotiate for rescue loans, and their pleas would be heard by regulators influenced as much by political as financial factors. The involvement of three different regulators (and mandatory consultation with the president) would magnify this risk. With bankruptcy, in contrast, the decision of whether and when to file is made by an institution’s managers and creditors, who have the best information and their own money on the line.

Much of the risk taking occurring in these institutions was caused by the moral hazard of knowing (or at least being willing to bet) that the government would step in and bail them out. Particularly since many in the government were on their payroll, either through campaign contributions, sweetheart mortgage deals, or simply the incestuous revolving door between the federal bureaucracy and the institutions. Fannie Mae and Freddie Mac both seem to have been a cushy retirement home for former Democrat operatives (e.g., Franklin Raines).

At this point, I think that the relevant political divide is not between the two parties. It is between the forces of Progressive Corporatism and the (much smaller) forces of The Resistance.

Or, as Virginia Postrel has noted, between dynamism and stasis. That’s the real point. Despite all the rhetoric, these people don’t want change. They are defenders of the status quo. Everything they’re doing is to prevent change. They don’t want housing values to change, they don’t want bank stock values to change, they don’t want UAW workers’ salaries to change, and (most of all) they don’t want any change in their level of power over the rest of us.

Remember, when a private company wants to cover up billions in losses and the responsibility for them, that’s a major scandal and proof of the evils of capitalism. But when a government regulator does the same thing, that’s just how people are, these things happen, whaddyagonnado? Plus, more evidence that the country’s in the very best of hands:

After the companies were taken over, investors around the world who buy the companies’ debt and mortgage investments weren’t willing to pay top dollar, reflecting doubts about whether the U.S. government would stand behind the firms if they faltered further. As a result, mortgage rates initially rose, further depressing house prices, contrary to what the government intended when it took over the firms.

Then, earlier this month Freddie Mac lost its chief executive, longtime banker David Moffett, who joined the company at the government’s behest in September. He clashed with government regulators who pushed him to take steps that would forgo revenue opportunities. Freddie Mac is now looking for a new chief executive, chief operating officer and chief financial officer — and having trouble finding them.

Gee, why would a business that the government has taken over and mismanaged have trouble recruiting fall guyssenior executives in this political climate?

I think that Liddy missed a big opportunity to have a McCarthy-hearing style moment, after having to take all that Bravo Sierra from the anal orifices on the Hill who really caused the crisis because they were on the take, after taking a thankless job for one dollar a year. He could have castigated them for their own roles, and resigned, with an “At last, Senator, have you no decency?” He’d have been my hero if he had, and I suspect a lot of people would have agreed.

Thoughts on the unsavory and oppressive relationship between big government and big business:

…one needs to remember that the New Deal was not the assault on big business that its fans claim. FDR may have talked a good game about going after “economic royalists,” and he did love confiscatory personal income taxes. But he and his Brain Trust also loved cartels, big businesses, and other “big units” of society. The notion that big business and big government are at war with one another is one of the great enduring myths of the 20th century. The truth is that ever since Teddy Roosevelt abandoned his love of trust-busting, progressives have liked big businesses big, really big. The bigger the business, the more reliable the partner for big government.

Contra popular myth/lies, It’s not libertarians who favor big business and corporations.

In visits to Asian capitals during the region’s financial crisis in the late 1990s, I often heard Asian reformers such as Singapore’s Lee Kuan Yew or Japan’s Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change. How fortunate, I thought then, that the United States was not similarly plagued by crony capitalism! However, watching Goldman Sachs’s seeming lock on high-level U.S. Treasury jobs as well as the way that Republicans and Democrats alike tiptoed around reforming Freddie Mac and Fannie Mae — among the largest campaign contributors to Congress — made me wonder if the differences between the United States and the Asian economies were only a matter of degree.

On Wall Street there is an old joke that the longest river in the emerging-market economies is “de Nile.” Yet how often do U.S. leaders respond to growing signs of economic dysfunctionality by spouting nationalistic rhetoric that echoes the speeches of Latin American demagogues like Peru’s Alan Garcia in the 1980s and Argentina’s Carlos Menem in the 1990s? (Even Garcia, currently in his second go-around as Peru’s president, seems to have grown up somewhat.) But instead of facing our problems we extol the resilience of the U.S. economy, praise the most productive workers in the world, and go on and on about America’s inherent ability to extricate itself from any crisis. And we ignore our proclivity as a nation to spend, year in year out, more than we produce, to put off dealing with long-term problems, and to engage in grandiose long-term programs that as a nation we can ill afford.

And of course, it’s also, historically, the basis for things like the minimum wage and Davis-Bacon — to keep people of darker hue from competing for white folks’ jobs. Amusingly, it is another demonstration of Jonah Goldberg’s thesis that so-called progressives are unfamiliar with their own intellectual history.